Correlation Between Harbor Large and Embark Small

Can any of the company-specific risk be diversified away by investing in both Harbor Large and Embark Small at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Harbor Large and Embark Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Harbor Large Cap and Embark Small Cap, you can compare the effects of market volatilities on Harbor Large and Embark Small and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Harbor Large with a short position of Embark Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Harbor Large and Embark Small.

Diversification Opportunities for Harbor Large and Embark Small

0.95

Correlation Coefficient

Harbor Large  Embark Small

Almost no diversification

The 3 months correlation between Harbor and Embark is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Harbor Large Cap and Embark Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embark Small Cap and Harbor Large is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Harbor Large Cap are associated (or correlated) with Embark Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embark Small Cap has no effect on the direction of Harbor Large i.e., Harbor Large and Embark Small go up and down completely randomly.

Pair Corralation between Harbor Large and Embark Small

Assuming the 90 days horizon Harbor Large is expected to generate 2.06 times less return on investment than Embark Small. But when comparing it to its historical volatility, Harbor Large Cap is 1.46 times less risky than Embark Small. It trades about 0.12 of its potential returns per unit of risk. Embark Small Cap is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,055  in Embark Small Cap on September 5, 2024 and sell it today you would earn a total of  121.00  from holding Embark Small Cap or generate 11.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Harbor Large Cap  vs.  Embark Small Cap

Harbor Large Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Harbor Large Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Harbor Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Embark Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Embark Small Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Embark Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Harbor Large and Embark Small

The main advantage of trading using opposite Harbor Large and Embark Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Harbor Large position performs unexpectedly, Embark Small can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Embark Small will offset losses from the drop in Embark Small's long position.

The idea behind Harbor Large Cap and Embark Small Cap pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.